1. Field of the Invention
The present invention relates to a method of measuring enterprise risk, performance, and potential, and more particularly, measuring the enterprise risk, performance, and potential of financial services businesses.
2. Background
Businesses generally strive to improve performance and lower risk with the goal of enhancing business potential. Financial services businesses, however, typically have more data, information and systems to measure the performance and risk of their investment portfolios than they have to manage the businesses supporting those portfolios. As a result, financial services businesses have scant and fragmented information about their business operations, particularly information related to enterprise risk, performance and potential.
To evaluate enterprise (or operational) risk, prior art methods use loss event narrative summaries as source data, usually excerpted from loss event logs maintained by a compliance officer. This information summarizes past loss events in an effort to raise awareness and to document the type, frequency and magnitude of loss events. While instructive in understanding what happened and the resulting consequences, this approach does not lend itself to pro-active loss prevention, thus calling into question the efficacy of traditional source data and enterprise risk methods.
In the financial services industry, the data, information and systems available to manage investment portfolios are highly sophisticated and comprehensive, however, there is little in the way of data, information or systems to manage investment businesses. Prior art methods use portfolio performance data to gauge how well a financial services business is performing and make no attempt to access or employ business operating data. This results in a lack of understanding about the business operations of financial services businesses and a dependence on anecdotal information to make business decisions.
Lacking data, information and systems, the various constituencies of financial services businesses operate with an isolated view and do not have the means to understand the interdependencies across business lines, nor the impact of those interdependencies on the business. In addition, they do not have a quantitative framework to evaluate the business as a whole. Thus, there is no enterprise, or “big picture,” view to work from either to measure business performance or to root out operational problems or inefficiencies. Further, there is no effective way to measure business risk or identify and address risk exposure issues.
To understand the ability of a financial services business to perform well in the future, prior art methods rely on past performance history despite the conventional wisdom that past performance is not indicative of future results. What's more, this data concerns only investment results and not the people, processes and technology having generated the results. Consequently, this approach does not provide a forward-looking perspective and provides little insight to understanding a financial services business.